£5k to invest? I think these stocks could double your money

These two companies look seriously undervalued writes Rupert Hargreaves.

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If you have £5,000 to invest and are looking for stocks that have the potential to double your money, I highly recommend taking a closer look at bingo facility operator JPJ (LSE: JPJ).

After many years of private equity ownership, this company went public in January 2017 and has struggled to attract investor interest ever since. This lack of investor interest could be something to do with the fact that the business’s former owners lumped it with a lot of debt and, until 2018, it was heavily loss-making.

However, in recent years, the company’s fortunes have started to improve. 

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JPJ reported a net profit of £15m for 2018 and net debt declined from £311m to £287m. City analysts are expecting further progress on all fronts this year. They’ve pencilled in a net profit of £76m for the year, and earnings per share of 98p, which puts the stock on a forward P/E of 6.7.

Clearly, the market is sceptical that JPJ can hit this target. Nonetheless, I think this could be an excellent opportunity for savvy investors to snap up a bargain which has the potential to more than triple in value from current levels.

Making progress

In my view, JPJ needs to prove to the market that it is making substantial headway reducing debt and growing earnings. Luckily, it is doing just that.

According to its results for the six months ended 30 June, the company generated free cash flow of £30.8m during the first half of the financial year, allowing it to reduce net debt to £270m. Management expects borrowing to decrease further during the rest of the year as gaming revenues expand. Gaming revenue increased 14% year-on-year during the first six months of 2019. 

Following this growth, management says that it is “confident” that the company can meet full-year earnings expectations. To help complement growth, the group acquired sports betting business Gamesys in June. Management expects the acquisition to complete in the third quarter of 2019. 

As the company continues to invest in growth and reduced debt, I think the market should take a more favourable view of the business. It might take some time, but with the rest of the sector trading at a forward P/E of around 16, JPJ looks severely undervalued. In my opinion, the potential rewards far outweigh the risks of investing here. 

Cash cow

Another stock that I think has the potential to double your money is homebuilder Barratt Developments (LSE: BDEV).

Barrett is an income and growth play. City analysts have the stock yielding 7% this year and the same again in 2020. On top of this, shares in the business trade at an undemanding nine times forward earnings. 

Thanks to booming demand for the company’s properties, powered in part by the government’s Help to Buy scheme, Barratt’s earnings per share have increased at a compound annual rate of 30% over the past six years. I think it is unlikely that this trend will continue indefinitely. 

Going forward, I reckon a conservative growth figure of around 3%, in line with inflation, is more suitable. Even at the slower rate of growth, I think the stock can double your money. Earnings growth of 3% coupled with a dividend yield of 7%, gives a potential total shareholder return of 10% per annum. At this rate of return, it would take just 7.2 years to double your money. 

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Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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